RariCapital

Summary:

I propose a new pool focused on foreign exchange assets, including prominent USD and EUR pegged stablecoins.

Background:

I think Fuse could be a great venue to kickstart foreign exchange markets within defi. Currently, there is very low support for most non-USD pegged stablecoins. I believe that a Fuse pool focusing on USD and EUR pegged stablecoins could be beneficial for the following reasons:

Users who denominate their expenses in EUR can hedge their foreign exchange risk. They would do this by depositing EUR denominated stablecoins to the fuse pool as collateral, and then borrowing USD stablecoins for farming or investment purposes. Users with EUR denominated income living outside the Euro zone can hedge their forex risk by borrowing EUR. Forex lending pools allow for carry trading (benefiting from interest rate differentials between currencies) as well as long/short strategies. This also allows for greater leverage, which may be necessary to make the volatility/potential returns great enough to interest defi investors. Lending pools allow for more efficient market making in EUR stablecoins. Creation of a conservatively specced lending pool could help bootstrap greater liquidity in and demand for EUR stablecoins.

Abstract:

I’d like to propose a pool with the following parameters and assets. Note that the initial risk limits are fairly stringent, but could be loosened over time if conditions allow. Over the medium term I’d like to move to 85% collateral factor and 8% liquidation incentive.

Upgradeable: Yes Liquidation Incentive: 8% Close Factor: 100% Platform Fee: 10%

Asset / Collateral Factor / Reserve Factor: DAI / 80% / 15% USDC / 80% / 15% sEUR / 80% / 20% EURS / 80% / 20%

Oracles: Use Chainlink Oracles. Use the corresponding fiat price instead of token specific price (eg. use 1 USD for DAI, EUR/USD for EURS and sEUR, etc).

Explanation of parameter selection: I believe setting the close factor at 100% should help prevent risk of smaller borrowing positions being unprofitable to liquidate. Higher reserve factors were selected for EUR vs USD backed stablecoins due to their relatively lower liquidity in DEX platforms, which increases risk of upside spikes and volatility which could make short positions against the EUR tokens insolvent.

Administrator: I propose setting the administrator for upgrades as the PastaDAO governance timelock (0x78bd635e7c76d6a48d1e4bda89e95ae8394ded11), controlled by governor alpha (0x9bb5a48878baa8bd884ecf6bdbc3812ca2bf9b9f) and staked PASTA/ETH LP holders (0x19f6afe15c7fd8a900dbc86623b0d36912a2af1f). The intent is to adjust risk parameters over time as conditions chance, and hopefully allow for greater leverage if non-USD stablecoins see improved on chain liquidity.

Risks: Because the oracles would use fiat prices to mark positions and trigger liquidation, any deviation from the peg in a constituent stablecoin beyond the 10% liquidation incentives could lead to pool insolvency.

Motivation:

I believe this pool could be beneficial to the Rari community by positioning Fuse as the leading platform for EUR trading and lending in defi. It could also help drive usage from Europe based investors and savers.

For: Create a EuroDollar Fuse Pool per the specification above.

Against: Do not create a EuroDollar Fuse Pool.